As a business owner, you may work with employees, contractors, or both. For example, you may have an in-house accountant who serves as your chief financial officer, and you may bring in an accounting firm to conduct a year-end audit. As long as you are clear about the employment status of those who perform work for your company, you shouldn’t have a problem.
However, if you mistakenly treat employees like independent contractors, your company could run into serious problems down the line. To avoid this, talk to an Alpharetta employee misclassification lawyer as soon as possible. One of the knowledgeable attorneys at Sparks Law can review your hiring contracts and ensure that you correctly classify all your workers.
As an employer, it is essential to understand the differences between employees and independent contractors. For one, you must issue Form 1099s to independent contractors and W-2s to employees. Additionally, employees have various benefits that independent contractors and freelancers do not get. These may include:
However, there are also benefits for independent contractors. For instance, freelancers get to pick the clients and projects they want to affiliate with. They usually work at their own pace and enjoy more independence in their work schedule.
Georgia’s workers’ compensation benefits are based on employee status. The federal government also uses employee status to calculate social security withholding. If an employee is incorrectly classified as a contractor, they could lose the ability to collect unemployment. An employer’s failure to withhold social security will also affect how much the employee receives in benefits when it comes time to retire.
The state and federal government can fine employers who wrongly classify employees as freelancers. To avoid this, the skilled attorneys at our Alpharetta office can apply a test to determine if any of your workers have been misclassified.
In January 2021, the federal Department of Labor (DOL) issued guidance on the difference between employees and independent contractors under the Fair Labor Standards Act (FLSA). Codified in 29 CFR Parts 780, 788, and 795, the ruling states that an economic reality test, also known as a control or ABC test, is still in place. This test clarifies whether the worker is independent or dependent on an employer by posing two questions:
The DOL lists other essential questions if worker designation is still uncertain:
To put it simply, if it looks like an employee-employer relationship, it probably is. The FLSA rule turns a critical eye on an employer’s control over employees in the following three areas of behavior, finances, and relationship.
Employers control how employees do their jobs and how long it takes to finish them. Workers who determine their hours and how to complete a project are more often independent contractors.
Employees earn a salary or hourly wage and may perform different duties at the employer’s whim, although their pay is always the same. Independent contractors may be paid by a retainer with the remainder after the job is completed and their affiliation ends.
Independent contractors are their own bosses who incur risk where the employee does not. An independent contractor’s agreement usually specifies that the worker is not an employee. To confirm an employment relationship, Alpharetta business owners should consult the employee misclassification attorneys at Sparks Law.
State and federal government rely on employment designations, so it is important to know whether your workers are employees or independent contractors. Government agencies are always on the lookout for errors, and even an unintentional misclassification could land you in trouble.
For trustworthy advice about your employee situation, talk to an Alpharetta employee misclassification lawyer at Sparks Law. Call today to get answers for all of your employment questions.
